The state-appointed lawyers who represent utility customers argued Thursday that the Public Service Commission inappropriately approved a rate increase for Florida Power & Light that they didn’t have a hand in negotiating.

FPL negotiated the approved settlement agreement with only large hospitals, factories and military installations, which make up less than one percent of the utility’s customers.

The lawyers say state law gives their office the same ability to veto a settlement agreement that a utility does. They say the settlement is bad for customers of not just FPL, but also those of Duke Energy, Gulf Power and Tampa Electric Company.

“If we lose, I cannot guarantee that the citizens of Florida will be charged rates that are in the public interest,” said JR Kelly, public counsel for the state.

Kelly is the lead lawyer for a group of attorneys appointed by the state legislature to defend consumers whenever a private, investor-owned utility company is looking to raise how much it charges for electricity—called the Office of Public Counsel, or OPC.

“We were shocked to see the commission approve this rate increase,” said Kelly. “It is not in the public interest.”

By approving FPL’s most recent rate hike, the PSC—a “quasi-judicial” state agency charged with setting utility rates—has set a precedent that would allow a utility company to increase the cost of electricity without consulting the lawyers who represent the majority of their customers.

Kelly believes his office must sign off on any deal approved by the commission. But the commission and FPL do not.

“There’s nothing stopping a utility company from negotiating a settlement with anyone who decides to intervene without contacting me,” said Kelly.

Kelly said both the commission and FPL are acting in ways they never have before, which he sees as part of a pattern to circumvent his office.

This is the first time in the agency’s history that the commissioners have approved a rate increase for a utility company that public counsel opposed.

How utility bills increase

To raise electricity prices, utility companies have to request the approval of the commission, which starts what is called a rate case. Since 2000, documents from the commission clerk’s office show Florida utilities have been filing these requests about every 3 years or so.

According to commission staff recommendations, the commission “serves as a substitute for the ‘invisible hand’ of competition that does not exist with a natural monopoly.”

When deciding a rate case, commissioners have to balance the interest of consumers for cheap, reliable electric service and the interest of the utility company to earn a large enough return on investment to attract investors.

At the heart of every rate case are two questions: “How much should the utility company be allowed to charge for electricity?” and “How much of what the company charges should it be allowed to keep as profit?” These are called the base rate and the return on equity (ROE), respectively.

The utility company, the Office of Public Counsel and any other person or group who wants to take part, called intervenors, formulate a list of issues posed in calculating the base rate and the ROE, which are projected costs the utility company expects to incur that require an increase in revenue.

Once the list is done, there are one of two options: the commission begins to hear witness testimony and rule on the issues in a trial-like rate case, or the intervenors file a rate settlement agreement that they negotiated among themselves.

Until now, public counsel had either been a party to any settlement agreement filed before the commission, or had chosen not to take a position on it. The commission had never approved a settlement agreement that public counsel had staunchly opposed.

FPL bypassed public counsel when the company filed a settlement agreement that it had reached with lawyers representing hospitals, large military installations and industrial power users just days before the start of the company’s rate case in August of last year, which caught JR Kelly completely off guard.

“The purported settlement is invalid without OPC's signature, support, or acquiescence,” wrote Kelly in his initial response opposing the agreement. “To approve it would effectively deny OPC the hearing to which it is entitled by law.”

The groups with whom FPL negotiated the settlement represent a little less than half of one percent of all FPL’s 4.6 million customers but use nearly half of the energy generated.

PSC rules indicate that if the commissioners decide to consider a rate settlement agreement, the regulators suspend the procedure for the rate case in favor of a new schedule for hearing the rate settlement agreement.

Despite Kelly’s objections, the commission not only decided to hear FPL’s rate settlement agreement, but also to approve it—setting a precedent for other utility companies to present agreements before the commission which public counsel had no hand in negotiating.

Filing the appeal

Kelly filed the notice of appeal to the Florida Supreme Court in mid-February, an action he had been planning to take since the PSC unanimously approved the agreement in December allowing the company a $305 million base rate increase.

FPL would not comment on the appeal outside of a statement saying the settlement “benefits all customers of FPL by enabling the utility to continue to deliver excellent reliability, industry-leading clean power, award-winning customer service and the lowest typical residential customer bills in Florida.”

One issue that has yet to be resolved centers on determining whether FPL made sincere attempts to include public counsel in the negotiations of the settlement.

FPL claims in testimony to have made many sincere attempts only to have public counsel spurn their advances, which Kelly denies. But neither side is allowed to cite specific examples of the negotiation process.

“There are certain things I cannot disclose based upon confidentiality agreements we entered into, which are common when negotiating settlements or possibly considering going into negotiations,” said Kelly.

Kelly could say that FPL never approached public counsel with a deal he believed had enough “give-and-take” to be in the public interest, meaning Kelly believes the customers he represents would receive fairer results from an actual rate case proceeding.

In its brief for the case, FPL said it had expressed interest in negotiating a settlement with public counsel in March 2012, putting "the ball in OPC's court." After public counsel showed no interest in a settlement, FPL negotiated a settlement with the remaining interveners in mid-July.

"A copy was trasmitted to OPC and OPC was 'directly invited to step in, if you like, and participate in the resolution,'" wrote FPL's lawyers in their reply brief.

Another issue at stake involves whether the commission needs public counsel’s signature on a deal before they are allowed to approve it.

In arguments presented at a commission hearing during the 2012 rate case, FPL lawyer Wade Litchfield denied public counsel’s claim that his office must be a party to any approved rate settlement agreement.

“No one Intervenor and not even Public Counsel should be able to prevent a petitioner from negotiating and reaching an agreement with other Intervenors who are willing to sit down and talk,” said Litchfield.

This argument didnot sit well with the intervenors who weren’t included in negotiating the settlement. Larry Nelson, an FPL customer who decided to take a stab at intervening in the 2012 rate case, pointed out his concerns with this argument in a motion to the state Supreme Court.

“Under FPL's reasoning, they could have drafted a ‘settlement’ with me while I was in the case, giving me free electricity for life, then used the ‘settlement’ with me to [determine] what the rates for all the other ratepayers should be,” wrote Nelson.

Litchfield’s argument appears to contradict FPL’s view expressed in a similar case before the Court, according to public counsel. In 2002, FPL had an approved rate settlement agreement appealed to the Florida Supreme Court by an intervenor representing large hospitals, which had not had a hand in negotiating the settlement.

“The ‘special conditions’ applicable to Public Counsel make his participation in the Stipulation vitally important,” wrote FPL in its brief for that case.

Public counsel believes this reasoning will prevail at the Supreme Court over the arguments FPL has presented before the PSC.

“They might tell you this today, that we don't matter, but I don't think they're going to change their tune when they argue before the Supreme Court and recede from the way they argued there,” said Charles Rehwinkel, an attorney for the Office of Public Counsel, in a hearing before the PSC.

Before the court, FPL did argue in its reply brief that public counsel's participation in a stipulation is vitally important, saying that position "is entirely consistent with FPL’s position now."

"FPL’s recognition of OPC’s importance in the process, however, does not translate into an endorsement of OPC’s unprecedented claim of veto power over the PSC’s consideration of a settlement agreement," wrote FPL's lawyers.

FPL argued that the need to protect the interests of specialized customers whose interests "are not adequately represented by public counsel" means the PSC has the authority to approve a settlement that public counsel, with its "mandate to represent the interests of customers generally," had no hand in negotiating and vehemently opposed.

Playing by their own rules

To the Office of Public Counsel, asking the Florida Supreme Court to review the rate increase was a risky decision.

The appeal is the lawyers’ only available option to require the commission to deny any settlement agreement that does not bear his signature. But rulings from similar appeals show the court rarely interferes with how the commission does business.

“We have consistently held that the Commission's orders, and concomitant interpretations of statutes and legislative policies that it is charged with enforcing, are entitled to great deference,” wrote the court in a ruling on a recent challenge to a commission decision.

Kelly said he feels like he is being forced to defend negotiation tactics his office commonly employs to ensure that a settlement agreement is in the public interest.

“I know that when we entered into a settlement with Progress [Energy] and Florida Power & Light three years ago, there were times, just like any other negotiation, that you sometimes get up and walk away from the table—but you come back,” said Kelly in a presentation to the Joint Committee on Public Counsel Oversight.

In hearings before the commission, public counsel has expressed belief that FPL is reading the law in whatever way will allow them to accomplish their desired ends.

“They like us when we're on their side. However, when they can't make us see it their way, they read the law 180 degrees differently,” said Rehwinkel.

By approving FPL’s settlement agreement, the Public Service Commissioners took a course of action that required “long and multi-facetted discussions with [the commission’s] legal staff” to figure out how to do it legally.

“I mean, I can go through line-by-line and paragraph-by-paragraph and suggest amendments, modifications, edits, removals, expansions that would address some of the issues that we have discussed,” said commissioner Lisa Edgar at that hearing.

“However, I understand…that that process is not available to us. However, Commissioners, I recognize that often if one path does not present itself, that there are other ways to accomplish the same ends,” she said.

Those same ends, according to a transcript of the proceedings, were for the commissioners to put together a “wish list,” negotiating a settlement from the bench that the commissioners felt comfortable approving.

“The way the commissioners acted, it was like, ‘I like this. I don’t like that. Maybe you guys can go back and think about this or think about that. Okay now we’re going to break for an hour and you guys see what you can bring back to us.’ I can’t tell you how surprised my office was to see them acting that way,” said Kelly.

None of the commissioners would comment on the settlement agreement or the appeal.

“It is inappropriate for the commission to respond,” wrote Cindy Muir, a spokeswoman for the commission, in an email.